Answer all the questions 1. Consider the game of Chicken that we discussed in class: Two players James and Dean each has two strategies: Swerve and Straight. If they both choose Swerve both get 0 as payoff. If they both choose Straight both get -2 as payoff. If one chooses Swerve the other chooses Straight then the player chooses Straight gets 1 and the player chooses Swerve gets -1. a. Assume the game of Chicken is played sequentially with James moves first and Dean moves second. Draw the game tree for this sequential game. Finding the rollback equilibrium of this sequential game. (10 pt) b. Again assume the game of Chicken is played sequentially with James moves first and Dean moves second. Draw the payoff table for this sequential game. Finding the Nash equilibria of this sequential game. Are rollback equilibrium and Nash equilibria the same? If not why? (15 pt) 2. Consider the following games a. Two players each with two strategies: LEFT ROWENA TOP 8020 BOTTOM 1090 COLIN RIGHT 595 8515 Does this game have pure strategy Nash equilibrium? Does this game have mixed strategy Nash equilibrium? (15 pt) b. Two players one with two strategies one with three strategies: LEFT ROWENA TOP 8020 BOTTOM 1090 COLIN CENTER 5050 2575 RIGHT 595 8515 Find the mixed strategy Nash equilibrium of the above game. (15 pt) c. Two players each with three strategies: COLIN CENTER 3. Consider a used car market. There are two types of used cars orange and lemon. Orange cars owner value their own cars at $10000. Lemon cars owner value their own cars at $2000. ers are willing pay $13000 for orange cars and $3000 for lemon cars. There are limited stocks of both types of cars. Thus ers have to compete with each other and pay their full willingness to pay. Owners of used car know the quality of their car but potential ers don’t. a. Suppose signaling is not available what is the minimum value of the fraction of oranges in the population f such that the market for oranges does not collapse? (15 pt) b. Suppose now signaling and screening is available. Owners of used car can get certificate to show that their car is orange. For owners of orange cars the cost of getting the certificate is $𝑥. For owners of lemon cars the cost of getting the certificate is $𝑥2 (they have to bribe the person). Finding the range of 𝑥 to achieve separation. (Hint: You need to check both Incentive Compatibility condition and Participation condition in this question. Car Owners’ alternative choice is not selling the car and keeping it.) (15 pt) LEFT 8020 5545 1090 RIGHT 595 2575 8515 ROWENA TOP MIDDLE BOTTOM Find the mixed strategy Nash equilibrium of the above game. (15 pt) 5050 6535 2575

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